As a chinese, I am proud of the progress in economic development my country has made in the recent decade. Even the rest of the world is deeply stranded in a huge recession originated from the housing and credit crisis in U.S. (now proliferated to nearly all sectors), China's GNP is still enjoying a 9% annual growth, thanks to the huge population. We shouldn't, however, like many of us, turn blind eyes to the existing or emerging problems that might turn out to be the fundamental bottlenecks for china's economy. This great article did a thorough analysis of some problems underling chinese business practice. Here I highlight several examples that I agree.
Although we have been enjoying one the fastest growth in the world and a minority of chinese cities have experience such a significant modernization that we almost forget where our country's economy is right now among our peers and how we come to this point. When you ask different parties what contributes to chinese economic achievement, you surely will get a manifold of answers. But the fact is, accept it or now, China's economy is built on its low labor and operational cost. Due to plenty of supply of cheap labor from the rural area, and less stringent environmental requirements, china has created an economic edge that attracts multinational companies to outsource their manufacturing jobs here. Not really because the chineses are smarter, as many of us tend to think.
If we look back in time, we can see that the path china is on is exactly the one that the "asian tigers" were on 20 years ago: South Korea, Taiwan, Singapore and HongKong used to manufacture low-profit-margin products for the West. If history repeats itself, we will see most of the labor-intense, export-oriented manufacturing jobs that now feed billions of mouths in china, will sooner or later be outsourced to even cheaper locations like Southeastern Asia and Africa, as long as their social political environments stabilize.
Although there are several key advantages that china might enjoy to keep the multinational companies here, such as access to the largest market in the world, the huge foreign currency reserves and holdings of financial assets, there is still an inevitable need to pave a sustainable road for its future. The article has pointed out that, in order to reinvent china's labor-based manufacturing sector, significant amount of efforts should be put to add innovations to the mix. Data has shown that our export is characterized by low-technology and low-quality. Although we have probably the largest population of college-and-beyond graduates in science and engineering in the world, but the lack of high tech brands rooted in china or high tech products coming out of chinese companies still signify the problem that we are not taking advantage of our engineering resources. There are several key issues that stand in the way of innovating in china, as pointed out in the articles. Most importantly, there is a lack of intellectual property protection system in china. Nobody wants to invest in R&D when their results are unprotected and are subject to copy right away. Secondly, majority of the chinese economy is still state-owned. The managements in those companies are frequently rotated, and their rewards are not transparently tied to how much value they have created during or beyond their tenures. There are thus no incentives to innovate in those companies. Don't want to be technologically suffocated in state-owned companies, the best graduates prefer foreign companies to the native ones. The remaining just deviates from engineering. The last but not the least, the financial system in china is so tied to a handful of state-owned companies that private enterprises couldn't get enough of a pie in terms of getting loans from banks. Lack of financial and human resources, and legal protections for their fruits, it's not hard to understand how a small-mid-size business would choose an easy route over a hard one: continue making low profit margin products instead of venturing for sophisticated ones.
The article has also pointed out that the chinese can actually make high quality products. High-end gadgets ranging from Ipods to GPS, luxury apparels to furniture, are all made in china. Lots of the manufacturers can't make their names recognized largely due to legal binding. But that also indicates there is a lack of marketing science to help this manufacturers to create and culture their own brands. Making a good leather handbag might be an art, but alluring billions of people lining up to buy them is the true business, and there must be a way to make that happen in china.
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